Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate Strengthens on Improved UK Manufacturing PMI
A better-than-expected uptick in May’s UK manufacturing PMI encouraged the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate to push higher ahead of the weekend.
Investors greeted news that the PMI had strengthened from 53.9 to 54.4, pointing towards a solid expansion within the manufacturing sector.
This boosted confidence in the outlook of the UK economy, fuelling hopes that the second quarter will see economic growth pick back up after the sluggish start to 2018.
However, as Duncan Brock, Group Director at the Chartered Institute of Procurement and Supply, commented:
‘To the casual eye, the manufacturing sector appears to be in a robust mood with a further rise in activity and the highest output growth for five months. But pore over the detail, there are some darker developments taking place, impacting on new order and jobs growth and creating the lowest optimism for six months.’
As a result, questions remain over the likelihood of the Bank of England (BoE) adopting a more hawkish outlook in the months ahead, limiting the upside potential of Pound Sterling (GBP) exchange rates.
GBP/AUD Exchange Rate Benefits From Rising Global Trade Tensions
With global trade war fears seeing a resurgence this offered additional support to the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate.
As the US imposed heavy steel and aluminium tariffs on the Eurozone, Canada and Mexico markets were naturally spooked by fears of retaliation.
If the US embarks on a trade war against key allies, as well as China, the appeal of the risk-sensitive Australian Dollar (AUD) is likely to remain muted.
A solid Australian manufacturing PMI was not enough to shore up AUD exchange rates on Friday, even though the sector continued to demonstrate a strong level of expansion in May.
Ahead of next week’s Reserve Bank of Australia (RBA) interest rate decision the Australian Dollar could struggle to make any particular gains against its rivals.
If policymakers opt to maintain a relatively cautious policy outlook this could boost the GBP/AUD exchange rate on Tuesday.
Stronger UK Services PMI Forecast to Boost Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate
The Pound Sterling to Australian Dollar (GBP/AUD) looks vulnerable to fresh downside pressure in the days ahead if May’s construction and services PMIs fail to show improvement.
Markets are particularly concerned to see the latest services PMI, as the sector remains the main growth engine of the UK economy.
If the service sector shows fresh signs of growth this is likely to shore up Pound Sterling, encouraging greater confidence in the domestic outlook.
As long as the PMIs point towards a stronger second quarter GBP exchange rates are set to remain on a stronger footing, with the odds of an August BoE interest rate hike strengthening.
On the other hand, if the sector fails to pick up this could weigh heavily on the Pound Sterling to Australian Dollar (GBP/AUD) exchange rate.